Home Prices down 1.7 trill – still a ways to go

Dec. 9, 2010 11:59 AM ET

This morning Zillow dropped a bomb - US home prices are down 1.7 trillion dollars in 2010. Although it’s a tragedy, I’m glad to finally this reality reflected in the public square. Neither the Fed, nor the Obama administration, nor the mainstream media have leveled with the American public. They are clueless about how much further we have to go. Hiddenlevers has been talking about Housing Prices returning to long term norms since spring of 2010. It really is nice to see that Morgan Stanley and Zillow are finally talking about this. Here is a HiddenLevers infographic that shows what’s to come: http://bit.ly/fCOrCA

As with any crisis, people with a lot to lose are always ready to offer a much more optimistic outlook, take Toll Brother’s CEO Douglas Yearley for example. In order for a rebound by 2012 as he predicts, the housing the market would need home prices to rise to 2007 levels. That means home prices would have to appreciate by 11% from current levels. That’s the complete opposite of what is going to happen. A simple look the trend line in real housing prices, since 1890, shows we are much more likely to see an 11% drop. Yearly exudes the same mentality that created the housing bubble in the first place. It still seems like some of us still haven’t sobered up from the drunken stupor of the mid-2000s.

In the short term, if there is a home sales pop (due to end of year deals, unloading inventory, etc.), then investors might buy into a housing rebound. In such a scenario, stocks like Home Depot should do well.

I used the screener to find stocks that would do well if Home Sales did rise. These are highly correlated with the Home Sales lever and have a solid dividend to boot: MDC Holding (MDC) and SKY CP (SKY).